**FORM 10-QUnited StatesSecurities and Exchange CommissionWashington, D. C. 20549**
|            | **(Mark  One)** | ** ** | ** **                                             | ** ** |
|------------|-----------------|------------|--------------------------------------------------------|------------|
| ** ** | **x**           | ** ** | **Quarterly  Report Pursuant to Section 13 or 15(d)**  | ** ** |
| ** ** | ** **      | ** ** | **of the  Securities Exchange Act of 1934**            | ** ** |
| ** ** | ** **      | ** ** | ** **                                             | ** ** |
| ** ** | ** **      | ** ** | **For the  quarterly period ended: August 31, 2006**   | ** ** |
| ** ** | ** **      | ** ** | ** **                                             | ** ** |
| ** ** | ** **      | ** ** | **OR**                                                 | ** ** |
| ** ** | ** **      | ** ** | ** **                                             | ** ** |
| ** ** | **o**           | ** ** | **Transition  Report Pursuant to Section 13 or 15(d)** | ** ** |
| ** ** | ** **      | ** ** | **of the  Securities Exchange Act of 1934**            | ** ** |

 

Commission FileNumber: **0-14820**

**IMMUCOR,INC.**(Exact name of registrant as specified in its charter)

| **Georgia**                      | ** ** | **22-2408354**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

 

| **3130 Gateway Drive P.O. Box 5625 Norcross, Georgia** |   | **30091-5625** |
|--------------------------------------------------------|--------|----------------|
| (Address of  principal executive offices)              |   | (Zip Code)     |

Registrant’stelephone number:  **(770)441-2051**

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes x        No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):
| Large accelerated filer x |   | Accelerated  filer o |   | Non-accelerated filer o |
|---------------------------|--------|----------------------|--------|-------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o        No x

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

# As of September 30, 2006:Common Stock, $0.10 Par Value – 67,731,966

 

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**IMMUCOR, INC. AND SUBSIDIARIES**

**FORM 10-Q**

**INDEX**
|              | ** ** | **PART I.   FINANCIAL INFORMATION**                                                                                                       |       |       |
|--------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **   | ** ** | ** **                                                                                                                                               |       |       |
| **Item 1.**  | ** ** | **Financial Statements**                                                                                                                                 |       |       |
| ** **   | ** ** | ** **                                                                                                                                               |       |       |
|         |       | Condensed  Consolidated Balance Sheets as of August 31, 2006 (unaudited) and May 31,  2006                                                               |       |       |
|         |       |                                                                                                                                                     |       |       |
|         |       | Condensed  Consolidated Statements of Income for the three months ended August 31, 2006  and 2005 (unaudited)                                            |       |       |
|         |       |                                                                                                                                                     |       |       |
|         |       | Condensed  Consolidated Statement of Shareholders’ Equity and Comprehensive Income for  the period June 1, 2006 through August 31, 2006 (unaudited) |       |       |
|         |       |                                                                                                                                                     |       |       |
|         |       | Condensed  Consolidated Statements of Cash Flows for the three months ended August 31,  2006 and 2005 (unaudited)                                        |       |       |
|         |       |                                                                                                                                                     |       |       |
|         |       | Notes to Condensed Consolidated Financial Statements  (unaudited)                                                                                        |       |       |
|         |       |                                                                                                                                                     |       |       |
| **Item 2.**  | ** ** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                          | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                               | ** ** | ** ** |
| **Item 3.**  | ** ** | **Quantitative  and Qualitative Disclosures about Market Risk**                                                                                          | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                               | ** ** | ** ** |
| **Item 4.**  | ** ** | **Controls and  Procedures**                                                                                                                             | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                               | ** ** | ** ** |
| ** **   | ** ** | **PART II.   OTHER  INFORMATION**                                                                                                         | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                               |       |       |
| **Item 1.**  | ** ** | **Legal Proceedings**                                                                                                                                    | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                               | ** ** | ** ** |
| **Item 1A.** | ** ** | **Risk Factors**                                                                                                                                         | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                               | ** ** | ** ** |
| **Item 2.**  | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                                         | ** ** | ** ** |
| ** **   | ** ** | ** **                                                                                                                                               | ** ** | ** ** |
| **Item  6.** | ** ** | **Exhibits**                                                                                                                                             |       |       |
| ** **   | ** ** | ** **                                                                                                                                               |       |       |
|         |       | SIGNATURES                                                                                                                                               |       |       |

 

2

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** **

**PART I.**

**FINANCIALINFORMATION**

**ITEM 1.Financial Statements.**

**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

(Amounts inthousands, except share data)
| ** **                                                                                                                                                                 | ** ** | **August 31, 2006** | ** ** | **May 31, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                 | ** ** | **(unaudited)**               | ** ** | ** **            | ** ** |
| **ASSETS**                                                                                                                                                                 | ** ** | ** **                    | ** ** | ** **            | ** ** |
| ** **                                                                                                                                                                 | ** ** | ** **                    | ** ** | ** **            | ** ** |
| CURRENT ASSETS:                                                                                                                                                            |       |                          |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                 |       | $                             | 69,761     |                  | $          | 54,103 |   |
| Short-term  investments                                                                                                                                                    |       | 646                           |       | 1,640                 |       |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,701 at August 31,  2006 and $1,950 at May 31, 2006                                                |       | 37,623                        |       | 37,199                |       |
| Inventories                                                                                                                                                                |       | 21,779                        |       | 20,651                |       |
| Deferred income  tax assets, current portion                                                                                                                               |       | 2,041                         |       | 2,041                 |       |
| Prepaid expenses  and other current assets                                                                                                                                 |       | 3,554                         |       | 5,158                 |       |
| Total current  assets                                                                                                                                                      |       | 135,404                       |       | 120,792               |       |
|                                                                                                                                                                       |       |                          |       |                  |       |
| PROPERTY AND EQUIPMENT,  Net                                                                                                                                               |       | 25,873                        |       | 25,684                |       |
| GOODWILL                                                                                                                                                                   |       | 34,444                        |       | 34,691                |       |
| OTHER INTANGIBLE  ASSETS, Net                                                                                                                                              |       | 6,133                         |       | 6,532                 |       |
| DEFERRED INCOME TAX  ASSETS                                                                                                                                                |       | 3,213                         |       | 3,115                 |       |
| OTHER ASSETS                                                                                                                                                               |       | 829                           |       | 873                   |       |
| Total assets                                                                                                                                                               |       | $                             | 205,896    |                  | $          | 191,687 |   |
|                                                                                                                                                                       |       |                          |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS'  EQUITY**                                                                                                                                  | ** ** | ** **                    | ** ** | ** **            | ** ** |
| ** **                                                                                                                                                                 | ** ** | ** **                    | ** ** | ** **            | ** ** |
| CURRENT LIABILITIES:                                                                                                                                                       |       |                          |       |                  |       |
| Accounts payable                                                                                                                                                           |       | $                             | 7,378      |                  | $          | 7,271 |   |
| Accrued expenses  and other current liabilities                                                                                                                            |       | 9,912                         |       | 9,470                 |       |
| Income taxes  payable                                                                                                                                                      |       | 10,061                        |       | 5,519                 |       |
| Deferred revenue  - current portion                                                                                                                                        |       | 5,398                         |       | 4,575                 |       |
| Current portion  of long-term liabilities                                                                                                                                  |       | 1,028                         |       | 1,074                 |       |
| Total current  liabilities                                                                                                                                                 |       | 33,777                        |       | 27,909                |       |
|                                                                                                                                                                       |       |                          |       |                  |       |
| ACQUISITION LIABILITY                                                                                                                                                      |       | 3,564                         |       | 3,980                 |       |
| DEFERRED REVENUE                                                                                                                                                           |       | 11,718                        |       | 11,500                |       |
| DEFERRED INCOME TAX  LIABILITIES                                                                                                                                           |       | 2,229                         |       | 2,232                 |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                               |       | 2,328                         |       | 2,195                 |       |
| Total  liabilities                                                                                                                                                         |       | 53,616                        |       | 47,816                |       |
|                                                                                                                                                                       |       |                          |       |                  |       |
| Commitments and  contingencies (Note 8)                                                                                                                                    |       |                          |       |                  |       |
| SHAREHOLDERS' EQUITY:                                                                                                                                                      |       |                          |       |                  |       |
| Common stock,  $0.10 par value; authorized 120,000,000 shares, issued and outstanding  67,713,696 and 67,926,206 shares at August 31, 2006 and May 31, 2006,  respectively |       | 6,771                         |       | 6,793                 |       |
| Additional  paid-in capital                                                                                                                                                |       | 11,188                        |       | 14,752                |       |
| Retained  earnings                                                                                                                                                         |       | 132,433                       |       | 119,700               |       |
| Accumulated  other comprehensive income                                                                                                                                    |       | 1,888                         |       | 2,626                 |       |
| Total  shareholders' equity                                                                                                                                                |       | 152,280                       |       | 143,871               |       |
| Total liabilities and  shareholders' equity                                                                                                                                |       | $                             | 205,896    |                  | $          | 191,687 |   |

 

The accompanying notes are an integralpart of these Condensed ConsolidatedFinancial Statements.

 

3

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**IMMUCOR, INC. ANDSUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF INCOME**

(Amounts in thousands, except per sharedata)(Unaudited)

 
| ** **                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **August 31,**              | ** ** | **August 31,** | ** ** |
| ** **                            | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                  |       |                             |       |   |   |
| NET SALES                             |       | $                                | 51,040     |   | $ | 42,434 |   |
| COST OF SALES                         |       | 16,504                           |       | 15,739 |   |
| GROSS PROFIT                          |       | 34,536                           |       | 26,695 |   |
|                                  |       |                             |       |   |   |
| OPERATING  EXPENSES                   |       |                             |       |   |   |
| Research and development              |       | 1,226                            |       | 1,255 |   |
| Selling and marketing                 |       | 5,559                            |       | 5,215 |   |
| Distribution                          |       | 2,288                            |       | 1,851 |   |
| General and administrative            |       | 5,222                            |       | 5,822 |   |
| Restructuring expense                 |       | 387                              |       | — |   |
| Amortization expense and other        |       | 87                               |       | 70 |   |
| Total operating expenses              |       | 14,769                           |       | 14,213 |   |
|                                  |       |                             |       |   |   |
| INCOME FROM  OPERATIONS               |       | 19,767                           |       | 12,482 |   |
|                                  |       |                             |       |   |   |
| OTHER INCOME  (EXPENSE)               |       |                             |       |   |   |
| Interest income                       |       | 518                              |       | 183 |   |
| Interest expense                      |       | (117                             | )          | (159 | ) |
| Other income (loss)                   |       | (61                              | )          | 82 |   |
| Total other income (expense), net     |       | 340                              |       | 106 |   |
|                                  |       |                             |       |   |   |
| INCOME BEFORE  INCOME TAXES           |       | 20,107                           |       | 12,588 |   |
| PROVISION FOR  INCOME TAXES           |       | 7,374                            |       | 4,582 |   |
| NET INCOME                            |       | $                                | 12,733     |   | $ | 8,006 |   |
|                                  |       |                             |       |   |   |
| Earnings per  share:                  |       |                             |       |   |   |
| Per common share - basic              |       | $                                | 0.19       |   | $ | 0.12 |   |
| Per common share  - assuming dilution |       | $                                | 0.18       |   | $ | 0.11 |   |

 

The accompanying notes are an integralpart of these Condensed ConsolidatedFinancial Statements.

 

4

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTOF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME**

(Unaudited, amounts in thousands)

 
| ** **                               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                               | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**  | ** ** |
| ** **                               | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** |
| ** **                               | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income**             | ** ** | **Equity** | ** ** |
|                                     |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| BALANCE, MAY 31,  2006                   |       | 67,926                |       | $           | 6,793      |           | $          | 14,752            |       | $                      | 119,700    |       | $          | 2,626 |   | $ | 143,871 |   |
| Exercise of  stock options               |       | 70                    |       | 6           |       | 216            |       | —            |       | —                 |       | 222        |       |
| Expense  recognized on options awarded   |       | —                |       | —      |       | 708            |       | —            |       | —                 |       | 708        |       |
| Stock repurchases  and retirements       |       | (282                  | )          | (28         | )          | (4,844         | )          | —            |       | —                 |       | (4,872     | )          |
| Tax benefits  related to stock options   |       | —                |       | —      |       | 356            |       | —            |       | —                 |       | 356        |       |
| Comprehensive  income (net of taxes):    |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| Foreign currency translation adjustments |       | —                |       | —      |       | —         |       | —            |       | (738                   | )          | (738       | )          |
| Net income                               |       | —                |       | —      |       | —         |       | 12,733            |       | —                 |       | 12,733     |       |
| Total  comprehensive income              |       |                  |       |        |       |           |       |              |       |                   |       | 11,995     |       |
|                                     |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| BALANCE, AUGUST 31,  2006                |       | 67,714                |       | $           | 6,771      |           | $          | 11,188            |       | $                      | 132,433    |       | $          | 1,888 |   | $ | 152,280 |   |

 

Accumulated OtherComprehensive Income balance primarily consists of foreign currency translationadjustments and has no tax effect.

 

The accompanyingnotes are an integral part of these Condensed Consolidated FinancialStatements.

 

5

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

(Unaudited, amounts inthousands)

 
| ** **                                                                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                          | ** ** | **August 31,**         | ** ** | **August 31,** | ** ** |
| ** **                                                                          | ** ** | **2006**               | ** ** | **2005** | ** ** |
| OPERATING ACTIVITIES:                                                               |       |                   |       |   |   |
| Net income                                                                          |       | $                      | 12,733     |   | $ | 8,006 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:  |       |                   |       |   |   |
| Depreciation and  amortization                                                      |       | 1,553                  |       | 1,798 |   |
| Accretion of  acquisition liabilities                                               |       | 46                     |       | 32 |   |
| Loss on retirement of  fixed assets                                                 |       | 69                     |       | 11 |   |
| Provision for doubtful  accounts                                                    |       | (217                   | )          | 186 |   |
| Compensation expense  recognized for stock options                                  |       | 708                    |       | 33 |   |
| Excess tax benefit from  stock-based compensation                                   |       | (356                   | )          | — |   |
| Changes in operating  assets and liabilities, net of effects from acquired company: |       |                   |       |   |   |
| Accounts receivable,  trade                                                         |       | (522                   | )          | (446 | ) |
| Income taxes                                                                        |       | 4,821                  |       | 2,472 |   |
| Deferred income taxes                                                               |       | (12                    | )          | 11 |   |
| Inventories                                                                         |       | (1,161                 | )          | 790 |   |
| Other current assets                                                                |       | 1,589                  |       | 211 |   |
| Other long-term assets                                                              |       | 28                     |       | 566 |   |
| Accounts payable                                                                    |       | 128                    |       | 673 |   |
| Deferred revenue                                                                    |       | 1,050                  |       | 3,906 |   |
| Accrued expenses and  other current liabilities                                     |       | 354                    |       | 1,089 |   |
| Other long-term  liabilities                                                        |       | 259                    |       | 17 |   |
| Cash provided by operating activities                                               |       | 21,070                 |       | 19,355 |   |
|                                                                                |       |                   |       |   |   |
| INVESTING ACTIVITIES:                                                               |       |                   |       |   |   |
| Purchases of property  and equipment                                                |       | (1,780                 | )          | (2,604 | ) |
| Payment for net assets  of acquired company                                         |       | —                 |       | (4,706 | ) |
| Proceeds from (purchase  of) short-term investments, net                            |       | 992                    |       | (997 | ) |
| Cash used in investing activities                                                   |       | (788                   | )          | (8,307 | ) |
|                                                                                |       |                   |       |   |   |
| FINANCING ACTIVITIES:                                                               |       |                   |       |   |   |
| Repayments of long-term  debt, liabilities and capital leases                       |       | (90                    | )          | (1,364 | ) |
| Repurchase of common  stock                                                         |       | (4,872                 | )          | — |   |
| Proceeds from exercise  of stock options                                            |       | 207                    |       | 12 |   |
| Excess tax benefit from  stock-based compensation                                   |       | 356                    |       | — |   |
| Cash used in financing activities                                                   |       | (4,399                 | )          | (1,352 | ) |
|                                                                                |       |                   |       |   |   |
| EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                               |       | (225                   | )          | — |   |
| INCREASE IN CASH AND CASH EQUIVALENTS                                               |       | 15,658                 |       | 9,696 |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                    |       | 54,103                 |       | 37,107 |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                          |       | $                      | 69,761     |   | $ | 46,803 |   |
|                                                                                |       |                   |       |   |   |
| SUPPLEMENTAL INFORMATION:                                                           |       |                   |       |   |   |
| Tax paid                                                                            |       | $                      | 1,833      |   | $ | 2,343 |   |
| Interest paid                                                                       |       | 63                     |       | 125 |   |
| Non-cash investing and  financing activities:                                       |       |                   |       |   |   |
| Acquisition obligation                                                              |       | —                 |       | 3,546 |   |

 

The accompanying notes are an integral part of these CondensedConsolidated Financial Statements.

 

6

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**IMMUCOR, INC. AND SUBSIDIARIES**

**Notes toCondensed Consolidated Financial Statements**

(Unaudited)

**1.****              NATUREOF BUSINESS AND Basis of Presentation**

***Natureof Business***

Immucor, Inc. (“Immucor” and, together with its whollyowned subsidiaries, the “Company”) is in the business of developing, manufacturingand marketing immunological diagnostic medical products. The Company operatesfacilities in the United States, Canada, Europe and Japan. The unaudited condensedconsolidated financial statements include the accounts of the Company and allof its subsidiaries.

***Basisof Presentation***

The accompanying condensed consolidated financialstatements are unaudited and have been prepared in accordance with U.S.generally accepted accounting principles (“GAAP”) for interim financialinformation, and the Securities and Exchange Commission’s (“SEC”) instructions forForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by GAAP for complete financial statements. In the opinion ofmanagement, all adjustments, consisting of normal recurring adjustments, unlessotherwise disclosed in a separate note, considered necessary for a fairpresentation of the unaudited condensed consolidated financial statements havebeen recorded in the interim periods presented. These unaudited, condensedconsolidated financial statements should be read in conjunction with theCompany’s audited, consolidated financial statements and related notes for theyear ended May 31, 2006, included in the Company’s Annual Report on Form 10-K. 

The accompanying condensed consolidated financialstatements present results of operations for the three months ended August 31,2006. These results are not necessarily indicative of the results that may beachieved for the year ending May 31, 2007, or any other period.

Shares and per share amounts for the three-monthperiod ended August 31, 2005 have been adjusted to reflect the impact of athree-for-two stock split in May 2006. 

***Basisof Consolidation***

The condensed consolidated financial statementsinclude the accounts of Immucor and all its subsidiaries. All significantinter-company balances and transactions have been eliminated in consolidation.Certain prior period amounts have been reclassified to conform to thepresentation in this report.

**2.****              INVENTORIES**

Inventories are stated at the lower of cost (first-in, first-out basis)or market (net realizable value):
|                             | ** ** | **August 31, 2006** | ** ** | **May 31, 2006** | ** ** |
|-----------------------------|------------|-------------------------------|------------|----------------------------|------------|
| ** **                  | ** ** | **(in thousands)**       | ** ** |
|                        |       |                          |       |                       |       |
| Raw materials  and supplies |       | $                             | 4,535      |                       | $          | 4,341 |   |
| Work in process             |       | 3,563                         |       | 3,495                      |       |
| Finished goods              |       | 13,681                        |       | 12,815                     |       |
|                        |       | $                             | 21,779     |                       | $          | 20,651 |   |

 

**3.****              STOCK-BASEDCOMPENSATION**

InDecember 2004, the Financial Accounting Standards Board revised Statement ofFinancial Accounting Standards No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123R”), requiring companies to record share-based paymenttransactions as compensation expense at the grant date fair value. The Company adoptedSFAS 123R in the fiscal year beginning June 1, 2006, using the modifiedprospective transition method, which requires that compensation costs berecorded as earned for all unvested stock options outstanding at the beginningof the first fiscal year of adoption of SFAS 123R based on the grant date fairvalue estimated in accordance with the original provisions of SFAS 123, and forcompensation costs for all share-based payments 

7

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granted ormodified subsequent to the adoption to be recorded, based on fair valueestimated in accordance with the provisions of SFAS 123R. In accordance withthe modified prospective transition method, the Company has not restated thefinancial statements for prior periods and those statements do not include theimpact of SFAS 123R. 

*Impact of adoption ofSFAS 123R*

On adoptionof SFAS 123R as of June 1, 2006, the unrecognized compensation expenseassociated with the remaining portion of the unvested outstanding awards was$4.5 million ($2.9 million, net of taxes). This compensation expense isexpected to be recognized on a straight-line basis over the weighted-averagevesting period of approximately four years.

Totalshare-based compensation expense included in the Condensed ConsolidatedStatement of Income for the three months ended August 31, 2006 was $708,000($510,000, net of taxes). As a result of adopting SFAS No. 123R on June 1,2006, the Company’s financial results were lower than under the Company’sprevious accounting method for share-based compensation by the followingamounts;

|                                                          | ** ** | **Three months**         | ** ** |
|----------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                               | ** ** | **Ended**                     | ** ** |
| ** **                                               | ** ** | **August 31, 2006** | ** ** |
|                                                     |       |                          |       |
| Earnings from  continuing operations before income taxes |       | $                             | 708,000    |   |
| Earnings from  continuing operations                     |       | 510,000                       |       |
| Net earnings                                             |       | 510,000                       |       |
| Basic and diluted net  earnings per common share         |       | 0.01                          |       |
|                                                          |            |                               |            |  |

 

Priorto adopting SFAS 123R, the Company presented all tax benefits resulting fromthe exercise of stock options as operating cash flows in the CondensedConsolidated Statement of Cash Flows. SFAS 123R requires cash flows resultingfrom excess tax benefits to be classified as a part of cash flows fromfinancing activities. Excess tax benefits are realized tax benefits from taxdeductions for exercised options in excess of the deferred tax assetattributable to stock compensation costs for such options. As a result ofadopting SFAS 123R, $356,000 of excess tax benefits for the three months endedAugust 31, 2006 have been classified as a financing cash inflow.  Prior to the adoption of SFAS 123R, such taxbenefits were disclosed as cash inflows from operating activities. 

 

Thefollowing table shows total stock-based compensation expense for the threemonths ended August 31, 2006, included in the Condensed Consolidated Statementof Income:

 

|                                 | ** ** | **Three months**         | ** ** |
|---------------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **Ended**                     | ** ** |
| ** **                      | ** ** | **August 31, 2006** | ** ** |
|                            |       |                          |       |
| Cost of sales                   |       | $                             | 119,000    |   |
| Research and  development       |       | 71,000                        |       |
| Selling and  marketing          |       | 139,000                       |       |
| Distribution                    |       | 31,000                        |       |
| General and  administrative     |       | 348,000                       |       |
| Total stock-based  compensation |       | $                             | 708,000    |   |

                                                                                                                                                

Had the Companyadopted the fair value recognition provisions of SFAS Statement No. 123 “*Accounting for Stock-Based Compensation*”, as amended by SFASStatement No. 148 for the quarter ended August 31, 2005, the effect on theCompany’s net income and earnings per share would have been as follows (inthousands, except per share data):

8

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|                                                                                                                    | ** ** | **Three Months**         | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                         | ** ** | **Ended **               | ** ** |
| ** **                                                                                                         | ** ** | **August 31, 2005** | ** ** |
|                                                                                                               |       |                          |       |
| Net income as reported                                                                                             |       | $                             | 8,006      |   |
| Stock based  employee compensation included in reported net income, net of taxes                                   |       | 35                            |       |
| Stock-based  employee compensation expense determined under fair value based methods for  all awards, net of taxes |       | (416                          | )          |
| Pro forma net income                                                                                               |       | $                             | 7,625      |   |
|                                                                                                               |       |                          |       |
| Earnings per  share as reported:                                                                                   |       |                          |       |
| Per common share - Basic                                                                                           |       | $                             | 0.12       |   |
| Per common share - Diluted                                                                                         |       | $                             | 0.11       |   |
|                                                                                                               |       |                          |       |
| Pro forma  earnings per share:                                                                                     |       |                          |       |
| Per common share - Basic                                                                                           |       | $                             | 0.11       |   |
| Per common share - Diluted                                                                                         |       | $                             | 0.11       |   |

 

*Valuation method usedand assumptions*

The Companyestimates the fair value of stock options using a Black-Scholes valuationmodel, consistent with the provisions of SFAS 123R, Securities and ExchangeCommission Staff Accounting Bulletin 107 (“SAB 107”) and the Company's priorpro forma disclosures of net earnings, including the fair value of stock-basedcompensation.

Key inputassumptions used to estimate the fair value of stock options include theexpected term until the exercise of the option, the expected volatility of theCompany's stock, risk free rates of return, option forfeiture rates, anddividends, if any. The fair value of each option grant in the first quarter offiscal year 2007 was estimated on the date of grant using the Black-Scholesoption-pricing model with the following assumptions:
|                               | ** ** | **Three months  ended**  | ** ** | **Three months  ended**  | ** ** |
|-------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                    | ** ** | **August 31, 2006** | ** ** | **August 31, 2005** | ** ** |
| Risk-free  interest rate (1)  |       | 4.95                          | %          | 4.14                          | %          |
| Expected  volatility (2)      |       | 41.55                         | %          | 68.21                         | %          |
| Expected life  (years) (3)    |       | 4.25                          |       | 8.0                           |       |
| Expected  forfeiture rate (4) |       | 0.81                          | %          | n/a                           |       |
| Expected dividend yield  (5)  |       | —                        |       | —                        |       |

 

----

1.               Based on the U.S. Treasury yield curve in effect at thetime of grant.

2.               Expected stock price volatility is based on the averagehistorical volatility of the Company’s shares during the period correspondingto the expected life of the options.

3.               Represents the period of time options are expected to remainoutstanding. The weighted average expected option term for the three monthsended August 31, 2006 was determined using the “simplified method” as allowedby SAB 107. The “simplified method” calculates the expected term as the averageof the vesting term and original contractual term of the options. BeginningJune 1, 2006, the contractual life of awards granted was reduced from 10 years to6 years which accounted for the reduction in expected life.

4.               For the three months ended August 31, 2006, the expectedforfeiture rate is based upon historical experience. Before the adoption ofSFAS 123R, the Company used actual forfeiture rates to calculate compensationexpense as allowed by SFAS 123 for the disclosure footnote required under SFAS148. Management estimates that the impact of this change, from the actualforfeiture rates to the estimated forfeiture rates as required under SFAS 123R,is not likely to be material as it is expected that the Company will continueto experience low staff turnover.

5.               The Company has not paid dividends on its common stock anddoes not expect to pay dividends on its common stock in the near future. 

 

9

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*Immucor, Inc. 2005 Long-TermIncentive Plan*

At an annual meeting ofthe Company’s shareholders held on December 13, 2005, the shareholders approvedestablishment of the Immucor, Inc. 2005 Long-Term Incentive Plan (the “2005Plan”). The 2005 Plan replaces the Company’s preexisting stock option planswhich have been frozen and remain in effect only to the extent of awardsoutstanding under these plans. Under the 2005 Plan, besides granting stockoptions, management is able to award stock appreciation rights, restrictedstock, deferred stock, and other performance-based awards as incentive andcompensation to employees. The maximum number of shares of the Company’s commonstock as to which awards may be granted under the 2005 Plan is 3,600,000. The maximumnumber of shares that may be used for awards other than stock options is 1,800,000,and the maximum number of shares that may be used for grants of incentive stockoptions is 1,800,000.  Options aregranted at the closing market price on the date of the grant. Option awardsgenerally vest based on four years of continuous service and have 6-yearcontractual terms. Restricted stock awards generally vest over five years.  The 2005 Plan provides for accelerated vestingof option and restricted stock awards if there is a change in control, asdefined in the plan.   

Duringthe three-month period ended August 31, 2006, options to acquire 166,280 sharesof common stock were granted and 127,105 shares of common stock were issued asrestricted shares pursuant to the 2005 Plan. These options have a six year term with vesting of 25% at the end of eachof the first four years; the restricted shares have 20% vesting at eachanniversary. Compensation costs for stock options with tiered vesting terms arerecognized evenly over the vesting period.

The following is asummary of the changes in outstanding options for the three months ended August31, 2006:
|                                                      | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted**          | ** ** | ** **               | ** ** |
|------------------------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------------|------------|--------------------------|------------|
| ** **                                           | ** ** | ** **         | ** ** | ** **              | ** ** | **Average**           | ** ** | ** **               | ** ** |
| ** **                                           | ** ** | ** **         | ** ** | **Weighted**            | ** ** | **Remaining**         | ** ** | **Aggregate**            | ** ** |
| ** **                                           | ** ** | **Number of** | ** ** | **Average**             | ** ** | **Contractual**       | ** ** | **Intrinsic Value** | ** ** |
| ** **                                           | ** ** | **Shares**         | ** ** | **Exercise Price** | ** ** | **Life (years)** | ** ** | **(1)**                  | ** ** |
| ** **                                           | ** ** | ** **         | ** ** | ** **              | ** ** | ** **            | ** ** | **(in thousands)**  | ** ** |
| Outstanding at  beginning of period                  |       | 4,892,957          |       | $                       | 4.14       |                  |       |                     |       |   |
| Granted                                              |       | 166,280            |       | $                       | 17.56      |                  |       |                     |       |   |
| Exercised                                            |       | (69,459            | )          | $                       | 3.22       |                  |       |                     |       |   |
| Forfeited                                            |       | (8,045             | )          | $                       | 7.62       |                  |       |                     |       |   |
| Expired                                              |       | (34,369            | )          | $                       | 11.37      |                  |       |                     |       |   |
| Outstanding at  end of period                        |       | 4,947,364          |       | $                       | 4.55       |                  | 5.2        |                     | $          | 80,294 |   |
|                                                 |       |               |       |                    |       |                  |       |                     |       |
| Exercisable at  end of period                        |       | 3,923,207          |       | $                       | 3.13       |                  | 4.7        |                     | $          | 69,257 |   |
|                                                 |       |               |       |                    |       |                  |       |                     |       |
| Shares available for  future grants at end of period |       | 1,553,231          |       |                    |       |                  |       |                     |       |

 

----

1)              The aggregate intrinsic value in the above table representsthe total pre-tax intrinsic value (the difference between the Company’s closingstock price on the last trading day of the first quarter of fiscal year 2007and the exercise price, multiplied by the number of options.) The amount ofaggregate intrinsic value will change based on the fair market value of theCompany’s stock.  

2)              The weighted-average grant-date fairvalue of share options granted during the first three months offiscal 2007 and 2006 was $7.08 and $13.56, respectively.  The total intrinsic value of share optionsexercised during the first three months of fiscal 2007 and 2006 was $1.1million and $0.5 million, respectively.

The following is asummary of the changes in unvested restricted stock for the three months endedAugust 31, 2006:

10

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|                                                      | ** ** | ** **                     | ** ** | **Weighted-Average**     | ** ** |
|------------------------------------------------------|------------|--------------------------------|------------|--------------------------|------------|
| ** **                                           | ** ** | ** **                     | ** ** | **Grant-Date Fair** | ** ** |
| ** **                                           | ** ** | **Number of Shares** | ** ** | **Value**                | ** ** |
| Nonvested stock  outstanding at beginning of period  |       | —                         |       | $                        | —     |   |
| Granted                                              |       | 127,105                        |       | 17.51                    |       |
| Exercised                                            |       | —                         |       | —                   |       |
| Forfeited                                            |       | (1,135                         | )          | 17.51                    |       |
| Expired                                              |       | —                         |       | —                   |       |
| Nonvested stock  outstanding at end of period        |       | 125,970                        |       | $                        | 17.51      |   |
|                                                 |       |                           |       |                     |       |
| Shares available for  future grants at end of period |       | 1,674,030                      |       |                     |       |

 

As of August 31, 2006, there was $7.0 million of totalunrecognized compensation cost related to non-vested share-based compensationarrangements granted under the 2005 Plan. This cost is expected to berecognized over a weighted-average period of 4.9 years.

 

**4.****              Earningsper share**

The following table sets forth the computation ofbasic and diluted earnings per share in accordance with SFAS No. 128, *Earnings per Share*.  

Basic earnings per commonshare are calculated by dividing net income by weighted-average common sharesoutstanding during the period. Diluted earnings per common share are calculatedby dividing net income by weighted-average common shares outstanding during theperiod plus dilutive potential common shares, which are determined as follows (inthousands, except per share data):

 
|                                                                                     | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                          | ** ** | **August 31,**              | ** ** | **August 31,** | ** ** |
| ** **                                                                          | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                                                                |       |                             |       |   |   |
| Numerator for  basic and diluted earnings per share:                                |       |                             |       |   |   |
| Net Income                                                                          |       | $                                | 12,733     |   | $ | 8,006 |   |
|                                                                                |       |                             |       |   |   |
| Denominator:                                                                        |       |                             |       |   |   |
| For basic earnings per share  - weighted average shares basis                       |       | 67,701                           |       | 68,313 |   |
| Effect of dilutive stock options                                                    |       | 2,488                            |       | 3,294 |   |
| Denominator for diluted earnings per share  -adjusted weighted average shares basis |       | 70,189                           |       | 71,607 |   |
|                                                                                |       |                             |       |   |   |
| Earnings per  common share – basic                                             |       | $                                | 0.19       |   | $ | 0.12 |   |
| Earnings per common  share – diluted                                           |       | $                                | 0.18       |   | $ | 0.11 |   |

 

**5.****              SEGMENT AND GEOGRAPHIC INFORMATION**

The Company’s operations and segments are organizedaround geographic areas. Immucor’s “Other” segment includes the operations ofBelgium, Portugal and Spain. The foreign locations principally function asdistributors of products developed and manufactured by the Company in theUnited States and Canada. The accounting policies applied in the preparation ofthe Company’s consolidated financial statements are applied consistently acrossthe segments. Intersegment sales are recorded at market price. 

##### Segment information for the three monthsended August 31, 2006 and 2005 is summarized below (in thousands). 

11

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|                                 | ** ** | **For the Three Months Ended August 31, 2006** | ** ** |
|---------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                      | ** ** | **U.S.**                                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:          |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers          |       | $                                                                                 | 33,748     |   | $ | 2,726 |   | $ | 3,269 |   | $ | 2,648 |   | $ | 2,030 |   | $ | 2,276 |   | $ | — |   | $ | 46,697 |   |
| Affiliates                      |       | 2,802                                                                             |       | 453 |   | — |   | 57 |   | — |   | 41 |   | (3,353 | ) | — |   |
| Total                           |       | 36,550                                                                            |       | 3,179 |   | 3,269 |   | 2,705 |   | 2,030 |   | 2,317 |   | (3,353 | ) | 46,697 |   |
| Net instrument  revenues:       |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers          |       | 2,219                                                                             |       | 430 |   | 281 |   | 105 |   | 2 |   | 231 |   | — |   | 3,268 |   |
| Affiliates                      |       | 190                                                                               |       | 822 |   | — |   | — |   | — |   | — |   | (1,012 | ) | — |   |
| Total                           |       | 2,409                                                                             |       | 1,252 |   | 281 |   | 105 |   | 2 |   | 231 |   | (1,012 | ) | 3,268 |   |
| Net collagen  revenues:         |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers          |       | 1,075                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,075 |   |
| Affiliates                      |       | —                                                                            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                           |       | 1,075                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,075 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                       |       | 40,034                                                                            |       | 4,431 |   | 3,550 |   | 2,810 |   | 2,032 |   | 2,548 |   | (4,365 | ) | 51,040 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations  |       | 18,151                                                                            |       | (285 | ) | 636 |   | 1,206 |   | (111 | ) | 408 |   | (238 | ) | 19,767 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                    |       | 700                                                                               |       | 167 |   | 326 |   | 47 |   | 39 |   | 186 |   | — |   | 1,465 |   |
| Amortization                    |       | 70                                                                                |       | — |   | — |   | — |   | 16 |   | 2 |   | — |   | 88 |   |
| Restructuring  expenses         |       | 387                                                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | 387 |   |
| Income tax  (benefit) expense   |       | 6,614                                                                             |       | — |   | 340 |   | 494 |   | — |   | 14 |   | (88 | ) | 7,374 |   |
| Capital  expenditures           |       | 1,287                                                                             |       | 46 |   | 259 |   | 15 |   | 12 |   | 161 |   | — |   | 1,780 |   |
| Property &  equipment - net |       | 16,644                                                                            |       | 2,330 |   | 3,002 |   | 1,306 |   | 552 |   | 2,039 |   | — |   | 25,873 |   |
| Total assets at period  end     |       | 179,502                                                                           |       | 13,071 |   | 19,732 |   | 14,542 |   | 13,302 |   | 9,531 |   | (43,784 | ) | 205,896 |   |
|                                 |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                                | ** ** | **For the Three Months Ended August 31, 2005** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan (1)** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Net reagent  revenues:         |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | $                                                                                 | 27,784     |   | $ | 2,702 |   | $ | 2,958 |   | $ | 2,283 |   | $ | 1,442 |   | $ | 2,074 |   | $ | — |   | $ | 39,243 |   |
| Affiliates                     |       | 2,197                                                                             |       | 485 |   | — |   | 86 |   | — |   | 44 |   | (2,812 | ) | — |   |
| Total                          |       | 29,981                                                                            |       | 3,187 |   | 2,958 |   | 2,369 |   | 1,442 |   | 2,118 |   | (2,812 | ) | 39,243 |   |
| Net instrument  revenues:      |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | 1,312                                                                             |       | 474 |   | 242 |   | (58 | ) | 1 |   | 154 |   | — |   | 2,125 |   |
| Affiliates                     |       | 26                                                                                |       | 723 |   | — |   | — |   | — |   | — |   | (749 | ) | — |   |
| Total                          |       | 1,338                                                                             |       | 1,197 |   | 242 |   | (58 | ) | 1 |   | 154 |   | (749 | ) | 2,125 |   |
| Net collagen  revenues:        |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated customers         |       | 1,066                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,066 |   |
| Affiliates                     |       | —                                                                            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 1,066                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,066 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 32,385                                                                            |       | 4,384 |   | 3,200 |   | 2,311 |   | 1,443 |   | 2,272 |   | (3,561 | ) | 42,434 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 11,054                                                                            |       | 129 |   | 148 |   | 931 |   | 87 |   | 172 |   | (39 | ) | 12,482 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                   |       | 755                                                                               |       | 208 |   | 479 |   | 62 |   | 3 |   | 208 |   | — |   | 1,715 |   |
| Amortization                   |       | 83                                                                                |       | — |   | — |   | — |   | — |   | — |   | — |   | 83 |   |
| Restructuring  expenses        |       | —                                                                            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Income tax  (benefit) expense  |       | 3,983                                                                             |       | 47 |   | 128 |   | 364 |   | 42 |   | 33 |   | (15 | ) | 4,582 |   |
| Capital  expenditures          |       | 2,022                                                                             |       | 219 |   | 154 |   | 85 |   | 4 |   | 120 |   |   |   | 2,604 |   |
| Property &  equipment, net |       | 14,007                                                                            |       | 2,486 |   | 3,915 |   | 1,260 |   | 48 |   | 2,291 |   | — |   | 24,007 |   |
| Total assets at period  end    |       | 158,130                                                                           |       | 13,507 |   | 17,472 |   | 12,161 |   | 13,639 |   | 10,505 |   | (46,555 | ) | 178,859 |   |
|                                |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)    Results of operations forJapan are included from July 5, 2005 onwards, the date on which the Companyacquired Immucor-Kainos, Inc.  No proforma information regarding revenue and income for Immucor-Kainos, Inc. is providedas the effect of the acquisition on the consolidated financial statements isnot material.

The Company’s U.S. operationsmade net export sales to unaffiliated customers of approximately $1.2 millionand $1.4 million for the three months ended August 31, 2006 and 2005, respectively.  The Company’s German operations made netexport sales to unaffiliated customers of approximately****$0.9million and $0.5 million for the three months ended August 31, 2006 and 2005,respectively.  The Company’s Canadianoperations made net export sales to unaffiliated customers of approximately****$0.4 million and $0.5 million for the three months ended August31, 2006 and 2005, respectively.  

**6.****              COMPREHENSIVE INCOME**

The components ofcomprehensive income for the three-month periods ended August 31, 2006 and 2005are as follows (in thousands):

12

----

 

|                                               | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **August 31,**              | ** ** | **August 31,** | ** ** |
| ** **                                    | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                          |       |                             |       |   |   |
| Net income                                    |       | $                                | 12,733     |   | $ | 8,006 |   |
| Net foreign  currency translation adjustments |       | (738                             | )          | 410 |   |
| Hedge loss reclassified  into earnings        |       | —                           |       | 5 |   |
| Comprehensive income                          |       | $                                | 11,995     |   | $ | 8,421 |   |

 

**7.****              STOCK REPURCHASEPROGRAM**

The Company instituted a stock repurchase program inJune 1998 for up to 6,075,000 shares of its common stock.  Subsequently, the Company’s Board of Directorsauthorized the Company to repurchase up to an additional 675,000 shares,1,125,000 shares, and 1,500,000 shares on June 1, 2004, August 2, 2004, andDecember 13, 2005, respectively, bringing the total number of shares authorizedfor repurchase to 9,375,000.  

As of May 31, 2006, 7,950,975 shares had beenpurchased under the program, leaving 1,424,025 shares available forpurchase.  During the quarter endedAugust 31, 2006, the company repurchased 281,969 shares at an average per shareprice of $17.23, bringing the aggregate number of shares repurchased to date to8,232,944 under the 1998 repurchase program. An aggregate of 1,142,056 shares were available for repurchase under theprogram as of August 31, 2006.

During the three months ended August 31, 2006, thetotal amount spent for the shares bought under this program amounted to $4.9million.  No shares were repurchasedduring the quarter ended August 31, 2005. 

**8.****              COMMITMENTS ANDCONTINGENCIES**

As previously reported in the Company’s Annual Reporton Form 10-K for the fiscal year ended May 31, 2006, the Company’s Italiansubsidiary and Dr. Gioacchino DeChirico, the former President of thesubsidiary, are the subjects of criminal proceedings in Milan, Italy centeredon payments by several companies, including Immucor, to certain Italianphysicians allegedly in exchange for favorable contract awards by theirhospitals. Dr. DeChirico has been charged as the former President of thesubsidiary with directing a 

13

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€13,500 payment to one physician and payments totalingapproximately $47,000 to another physician, and the subsidiary has also beencharged concerning the €13,500 payment under an Italian law holding thesubsidiary responsible for actions allegedly taken by an officer. The SEC hasissued a formal investigative order in these matters but has not expressed to theCompany any conclusions about the ultimate outcome of its investigation. Apreliminary hearing in Italy has been set for October 10, 2006, and the Companyis in discussions with the Italian prosecutor about settling the Italianproceeding before the hearing.  TheCompany expects to reach such a settlement on terms that will not have amaterial adverse effect on its consolidated financial position.  However, Dr. DeChirico has indicated heintends to contest any charges against him, and such proceedings and relatedappeals could continue for an extended period of time.  Both the Company and Dr. DeChirico intend to seekto settle the SEC investigation in the near term.  Except in connection with the Company’sabove-noted discussions with the Italian prosecutor, no determination can yetbe made as to whether, in connection with these circumstances, the Company willbecome subject to any fines, penalties and/or other charges imposed by anygovernmental authority, or any other damages or costs that may arise inconnection with these circumstances.

Between August 31 and October 19, 2005, a series often class-action lawsuits were filed in the United States District Court forthe Northern District of Georgia against the Company and certain of its currentand former directors and officers alleging violations of the securities laws.The Court has consolidated these cases for disposition under the caption In reImmucor, Inc. Securities Litigation, File No. 1:05-CV-2276-WSD, designated leadplaintiffs, permitted the filing of an amended consolidated complaint, andestablished a schedule for briefing the Company’s motion to dismiss the claims.The consolidated complaint, brought on behalf of a putative class ofshareholders who purchased Immucor stock between August 16, 2004 and August 29,2005, alleges that the Company’s stock prices during that period were inflatedas a result of material misrepresentations or omissions in the Company’sfinancial statements and other public announcements regarding the Company’sbusiness. On March 7, 2006, the Company timely moved to dismiss theconsolidated complaint. On October 4, 2006, the Court denied the Company’smotion to dismiss. Discovery has not yet begun. The Court made no determinationwhether any of the plaintiffs’ claims have merit or should be allowed toproceed as a class action. Management believes the claims are without merit,and intends to vigorously defend the Company. While management does notcurrently expect these lawsuits to materially affect the Company’s financialcondition or results of operations, there can be no assurance of any particularoutcome.

The Company’s compliance with its Affirmative ActionPlan is being audited by the U.S. Department of Labor’s Office of FederalContract Compliance Programs (OFCCP) concerning personnel activity from July 1,2003 through June 30, 2004 and July 1, 2004 through February 13, 2005. If OFCCPdetermines that a violation of Federal antidiscrimination statutes hasoccurred, it has the power to order remedial action. Due to the preliminarynature of this matter, management is not yet able to determine whether theCompany will become subject to any such remedial action.

Other than as set forth above or as previouslyreported in the Company’s Annual Report on Form 10-K for the fiscal year endedMay 31, 2006, the Company is not currently subject to any material legalproceedings, nor, to the Company’s knowledge, is any material legal proceedingthreatened against the Company. However, from time to time, the Company maybecome a party to certain legal proceedings in the ordinary course of business.Management does not believe any ongoing legal proceedings including thosesummarized above, will have a material adverse effect on our consolidatedfinancial position.

**9.****              RECENT ACCOUNTINGPRONOUNCEMENTS**

In July 2006,the Financial Accounting Standards Board issued FASB InterpretationNo. 48,*Accounting for Uncertainty inIncome Taxes, an interpretation of FASB Statement No. 109*  (“FIN 48”). FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in an enterprise’s financialstatements in accordance with FASB Statement No. 109,*  Accountingfor Income Taxes*.  FIN 48describes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return and also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 is fully effective as of January 1,2007. The new rules will be effective for the Company infiscal 2008.  The Company has not yet determined theimpact of this new accounting interpretation on its financial statements.

**10.****       SUBSEQUENT EVENTS**

On September 7, 2006, Edward L.Gallup, the Chief Executive Officer, Chairman of the Board of Directors andfounder of the Company announced his retirement from the positions of ChiefExecutive Officer, Chairman of the Board and director of the Company. Mr.Gallup retired from his position as the Chief Executive Officer and Dr.Gioacchino (Nino) DeChirico was elected as his successor in that position,effective immediately.  Mr. Gallup willbe employed by the Company through January 31, 2007, and he will hold hispositions as the Chairman of the Board and a director of the Company up to theconclusion of the Company’s next annual meeting to be held on November 15,2006. 

Under the terms of Mr. Gallup’s employmentagreement, 42,188 unvested stock options granted through April 30, 2006, willvest on January 31, 2007 and become exercisable in full for the remainder ofthe terms of those options. Options to purchase 26,568 shares and 8,860restricted shares granted after April 30, 2006 under the Company’s new 2005Long-Term Incentive Plan will also vest immediately.  The compensation expense amounting toapproximately $485,000 pertaining to all the unvested options and restrictedshares as of September 7, 2006 will be expensed evenly for the remaining periodof Mr. Gallup’s service which will terminate on January 31, 2007. 

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**ITEM2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

*Certain statements that  the Company may make from time to time,including all statements contained in this report that are not statements ofhistorical fact, constitute “forward-looking statements” under the federal securitieslaws. Forward-looking statements may be identified by words such as “plans,”“expects,” “believes,” “anticipates,” “estimates,” “projects,” “will,” “should”and other words of similar meaning used in conjunction with, among otherthings, discussions of future operations, financial performance, productdevelopment and new product launches, FDA and other regulatory applications andapprovals, market position and expenditures. Factors that could cause actual results to differ materially from thoseexpressed in any forward-looking statement made by, or on behalf of, theCompany include the following, some of which are described in greater detailbelow:  the decision of customers todefer capital spending; the inability of customers to efficiently integrate ourinstruments into their blood banking operations; increased competition in thesale of instruments and reagents; product development or regulatory obstacles; theability to hire and retain key managers; changes in interest rates and foreigncurrency exchange rates; the ability of the Company’s Japanese subsidiary toattain expected revenue, gross margin and net income levels; delays inregulatory approvals or other unforeseen delays related to the Company’s plansto move Houston manufacturing operations to another Company facility; higherthan expected costs related to the planned closure of the Houston facility;higher than expected manufacturing consolidation costs; problems in efficientlyproducing products after the consolidation; the outcome of any legal claimsknown or unknown; and general economic conditions. In addition, thestrengthening of the dollar versus the Euro, Canadian Dollar and Japanese Yenwould adversely impact reported results. Investors are cautioned not to place undue reliance on anyforward-looking statements.  The Companycautions that historical results should not be relied upon as indications offuture performance.  The Company assumesno obligation to update any forward-looking statements.*  *Additional information concerning these and other factors which couldcause differences between forward-looking statements and future actual resultsis discussed under the heading “Risk Factors” in our Annual Report on Form 10-Kfor the year ended May 31, 2006, as filed with the SEC on August 1, 2006.*

**Overview**

Founded in 1982,Immucor develops, manufactures and sells a complete line of reagents andautomated systems used primarily by hospitals, clinical laboratories and bloodbanks in a number of tests performed to detect and identify certain propertiesof the cell and serum components of human blood prior to bloodtransfusion.  Our strategy is tostrengthen our leadership position in the automation of blood bank testing bycontinuing to expand our base of installed instruments. To facilitateinstrument placements, we offer customers a selection of automated analyzers,which address the various needs of low, medium, and high-volume testingfacilities.  We utilize a“razor/razorblade” business model.  Ourinstruments are designed to operate with our proprietary reagents.  Therefore, once a customer procures aninstrument from us, the customer is likely to continue to purchase proprietaryreagents from us for use with the instrument on an on-going basis.  In order to satisfy the broad spectrum ofcustomers’ operational and financial criteria, we intend to continue to offerseveral instrument procurement options, including third-party financing leases,direct sales and reagent rentals and to expand the range and price points of ourinstrument offerings.

As furtherdiscussed below under “Results of Operations,” the improvement in revenues and grossmargins during the quarter ended August 31, 2006, as compared to the prior yearperiod, was due primarily to the following:

·                  Reagentprice increases;

·                  IncreasedCapture reagent revenues with placement of additional instruments which requirethe use of Capture reagents; and

·                  Increasedmanufacturing efficiencies due in part to the continued elimination of a numberof redundant products previously manufactured at our three manufacturingfacilities.

*Business outlook*

For fiscal 2007, besides continuing to focus onimproving gross margins on our products through achieving continued benefitsfrom successful strategies already implemented, our focus will be on customersatisfaction, which will be a major business driver for achieving our plannedgrowth. To that end, we have recently made changes to our organizationalstructure. We have also made changes in the logistics division of our business,streamlining operations to maximize efficiencies.  As we monitor our progress and strengthen ourfocus on customer satisfaction, our organization will evolve and we may makemore changes to achieve our objectives.  

In addition to the abovestrategies, we expect to further improve our competitive position through thelaunch of our third generation automated assay instrument, which is currently expectedto be released in the U.S. and European markets in the fourth quarter of fiscal2007. The actual launch date is dependent on FDA clearance of the instrument inthe United States, which is based on a number of variables, some of which areoutside our control.  A launch of theGalileo ECHOTM in the fourth quarter of fiscal 2007 assumes our submission tothe FDA is made by the third quarter of fiscal 2007 and assumes clearance isgranted within 90 days after that submission. A delay in the submission or in FDA review and clearance would delay thelaunch. The Galileo ECHOTM is significantly smaller and faster than the ABS2000and, apart from lower throughput, has substantially all of the features of ourlarger Galileo product.  We believe thenew instrument will appeal to the small- to medium-sized hospital market, thelargest segment of our customers (which number approximately 5,000 to 6,000worldwide), to which our ABS2000 instrument is currently marketed.  Based on the positive customer reaction toour planned launch of the Galileo ECHOTM, we believe we can achieve market sharegain and revenue growth through continued Galileo placements and the launch ofthe Galileo ECHOTM.  We also recentlycommenced research and development work on a second generation Galileo. We expect that improvements in the secondgeneration Galileo will extend the life of the instrument by several years.

Additionally, as aresult of the planned closure of the Houston, Texas manufacturing facilityscheduled for December 2007 and the subsequent consolidation of production inNorcross, Georgia and Halifax, Nova Scotia, the Company anticipates asignificant reduction in costs, with the benefits expected to be partiallyrealized in the 2008 fiscal year and fully realized in fiscal 2009 andsubsequent years.

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**Resultsof Operations**

We generatedrevenues of $51.0 million for the three-month period ended August 31, 2006compared to $42.4 million for the three-month period ended August 31, 2005, anincrease of 20%.  Our gross marginincreased to 68% for the quarter ended August 31, 2006, from 63% for thequarter ended August 31, 2005.

Net income for thethree-month period ended August 31, 2006 totaled $12.7 million compared to $8.0million for the three-month period ended August 31, 2005, an increase of 59%.Diluted earnings per share was $0.18 for the three-month period ended August 31,2006 compared with diluted earnings per share of $0.11 for the three-monthperiod ended August 31, 2005, an increase of 64%.

For thethree-month period ended August 31, 2006, the effect on net sales and grossmargin of the change in the Euro exchange rate was an approximate increase of$0.4 million and $0.2 million, respectively. For the three-month period ended August31, 2006, the effect on net sales and gross margin of the change in the CanadianDollar exchange rate was an approximate increase of $0.2 million and $0.1million, respectively. Net income increased by $0.1 million due to changes inthe Euro and Canadian Dollar rates. 

The adoption ofSFAS 123R, on June 1, 2006, resulted in a reduction of net income before taxand net income of approximately $0.7 million and $0.5 million, respectively,for the quarter ended August 31, 2006. 

United Statesoperations continue to generate a majority of our revenue and operating income.U.S. operations generated 73% and 92%, respectively, of our revenue andoperating income in the three months ended August 31, 2006 compared to 71% and89%, respectively, in the corresponding period of fiscal year 2006. 

|                                | ** ** | **Three Months Ended August 31,** | ** ** | ** ** | ** ** |
|--------------------------------|------------|-------------------------------------------------------|------------|------------|------------|
| ** **                     | ** ** | **2006**                                              | ** ** | **2005**   | ** ** | **% change** | ** ** |
| ** **                     | ** ** | **($in thousands)**                              | ** ** | ** ** | ** ** |
| Net Sales                      |       | $                                                     | 51,040     |       | $          | 42,434 |   | 20 | % |
| Gross profit                   |       | 34,536                                                |       | 26,695     |       | 29 | % |
| Gross profit  percentage       |       | 68                                                    | %          | 63         | %          | 8 | % |
| Research and development       |       | 1,226                                                 |       | 1,255      |       | -2 | % |
| Selling and marketing          |       | 5,559                                                 |       | 5,215      |       | 7 | % |
| Distribution                   |       | 2,288                                                 |       | 1,851      |       | 24 | % |
| General and administrative     |       | 5,222                                                 |       | 5,822      |       | -10 | % |
| Restructuring expense          |       | 387                                                   |       | —     |       | n/m |   |
| Amortization expense and other |       | 87                                                    |       | 70         |       | 24 | % |
| Total operating expenses       |       | 14,769                                                |       | 14,213     |       | 4 | % |
| Other income                   |       | 340                                                   |       | 106        |       | 221 | % |
| Income before  income tax      |       | 20,107                                                |       | 12,588     |       | 60 | % |
| Provision for  income tax      |       | 7,374                                                 |       | 4,582      |       | 61 | % |
| Net income                     |       | $                                                     | 12,733     |       | $          | 8,006 |   | 59 | % |

 

*Revenues*

Revenue for this fiscal quarter totaled $51.0 million,up 20% from $42.4 million in the corresponding period in the prior fiscal year.The $8.6 million increase was primarily the result of price increases in theU.S. (approximately $4.4 million), volume increase in the U.S. (approximately$2.4 million), increase in sales outside the U.S. (approximately $1.2 million)and the effect of changes in the Euro and Canadian Dollar exchange rates(approximately $0.6 million). 

Traditional reagent revenues grew to $37.5 millioncompared to $31.3 million in the prior year quarter, a 20% increase.  The growth in traditional reagent revenue (i.e.products not utilizing the Company’s patented Capture® technology) occurredmainly as a result of price increases. Traditional reagent sales havehistorically been our primary source of revenue and still constitute a verysignificant portion of our business. We expect the significance of this line ofproducts to eventually decline as we place more instruments in the market andincrease sales of our Capture® products. 

Capture® product sales increasedby 16% to $9.2 million in the three-month period ended August 31, 2006 comparedto $7.9 million in the three-month period ended August 31, 2005.  Sales of Capture® products are largelydependent on the number of instruments requiring the use of Capture® reagentsplaced with customers and in operation. As we succeed in placing moreinstruments in the market, we expect revenue from Capture® products to continueto increase. Approximately 75% of the growth in Capture product revenue wasattributable to volume increase.

Sales of instruments were $3.3 million in the first quarterof fiscal 2007 compared to $2.1 million in the first quarter of fiscal 2006, anincrease of 57%.  Most instrument salesin the United States are recognized over the life of the underlying reagentcontract, which is normally five years. In the quarter ended August 31, 2006, approximately$1.7 million of instrument sales were deferred in this manner while the entirecost of these instruments of $1.3 million was expensed, and $0.9 million of previouslydeferred revenue was recognized. As of August 31, 2006, deferred revenues,including service deferred revenues, totaled $17.1 million. In addition to thenew revenue we expect to generate from the continued placement of more Galileoinstruments in the market, we also expect to begin generating revenues infiscal 2008 from the sale of our new Galileo ECHOTMinstruments.

Human collagen sales remain a very small part of ourbusiness. Human collagen sales were $1.1 million for the quarters ended August31, 2006 and 2005. 

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*Gross Margin*

Overall gross margin improved during the quarter endedAugust 31, 2006 to a record 68%, up from 63% in the prior year quarter. Grossmargin on traditional reagents for the quarter ended August 31, 2006 increasedto 74% in the current quarter from 69% in the prior year quarter as a result ofthe price increases discussed above as well as from manufacturing efficiencies.The gross margin on Capture® products was 80% for the current quarter, a slightimprovement (0.1%) compared to the prior year quarter.  The gross margin on instruments was anegative 31% for the current quarter, compared to a negative 75% for the samequarter last year.  Instrument grossmargin is negatively impacted by deferral of revenue from instrument saleswhile the entire cost of sales on those instrument sales was expensed in thequarter in which the instruments are sold. The gross margin on human collagen saleswas 38% during the current quarter compared to 28% in the prior yearquarter.  

*Operating Expenses*

Researchand development expenses were $1.2 million in the first quarter, down 2%compared to the prior year quarter.  

Selling andmarketing expenses increased by approximately $0.3 million for the three-monthperiod ended August 31, 2006 compared to the three-month period ended August 31,2005.  Our new Japanese subsidiary wasprimarily responsible for this increase.

Distributionexpenses increased by approximately $0.4 million for the three-month periodended August 31, 2006 compared to the corresponding period ended August 31,2005. Our U.S. shipment costs were higher by approximately $0.2 million, and ournew Japanese subsidiary was responsible for approximately $0.1 million of the increase.

General and administrative expenses decreased by $0.6 million forthe first quarter of 2007 as compared to the prior year quarter, mainly due toreduction in professional fees of $1.2 million. This saving was partially offsetby an increase in staff costs amounting to $0.5 million, of which $0.3 millionwas related to stock-based compensation that was expensed upon adoption of SFAS123R.   

During the quarterended August 31, 2006, we recorded a charge of approximately $0.4 million inconnection with the planned closure of our Houston facility. The total cost ofclosing this plant is estimated at $4.6 million, including approximately $2.3million for impairment of long-lived assets which we recorded in fiscal year2006. As of August 31, 2006, we have recorded a total cost of $3.1 million andexpect to incur approximately $1.5 million of additional costs until we closethe facility in December 2007. Total future cash outlays for the restructuringplan are expected to be approximately $2.0 million.  No restructuring charges were recorded in thefirst quarter of fiscal year 2006.

*Net Income and Earnings per Share*

Higher sales, improvedmargins and only a marginal increase in expenses resulted in net income for thefiscal 2007 first quarter of $12.7 million, up 59% from $8.0 million for thesame quarter last year. For the fiscal 2007 first quarter, diluted earnings pershare was $0.18, up from $0.11 for the same period last year. 

**Liquidityand Capital Resources**
|                                                               | ** ** | **For the Three Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                    | ** ** | **August 31,**                                | ** ** |
| ** **                                                    | ** ** | **2006**                                           | ** ** | **2005** | ** ** |
| ** **                                                    | ** ** | **(in thousands)**                            | ** ** |
| Net cash  provided by operating activities                    |       | $                                                  | 21,070     |   | $ | 19,355 |   |
| Net cash used in  investing activities                        |       | (788                                               | )          | (8,307 | ) |
| Net cash used in  financing activities                        |       | (4,399                                             | )          | (1,352 | ) |
| Effect of  exchange rate changes on cash and cash equivalents |       | (225                                               | )          | — |   |
| Increase in cash  and cash equivalents                        |       | $                                                  | 15,658     |   | $ | 9,696 |   |

 

We have adequateworking capital and sources of capital to carry on our current business and tomeet our long- and short-term capital requirements.  At August 31, 2006, we had working capital of$101.6 million, compared to $92.9 million of working capital at May 31, 2006.  Our cash and cash equivalents were $69.8million at August 31, 2006, as compared to $54.1 million at May 31, 2006. 

*Operatingactivities* - Net cash generated by operating activities was $21.1million for the three months ended August 31, 2006, an increase of $1.7 millionover the $19.4 million generated in the three month period ended August 31,2005.  This increase was primarily drivenby a $4.7 million, or 59%, increase in net income, offset by a decrease of $3.0million in cash generated from the reduction in the working capital in thefiscal 2007 quarter compared to the fiscal 2006 quarter. An increase indeferred revenue, an important component of our working capital, contributed$1.1 million of cash in the first three months of fiscal 2007 compared to acontribution of $3.9 million in the first three months of fiscal 2006. Asignificant portion of our instrument sales revenue is deferred and cashgenerated from operating activities is affected by the level of instrumentsales activity for which revenue is deferred. An increase in instrument saleswith deferred revenue tends to have a positive effect on the cash position (anda reduction in the working capital) even though revenue is not recorded in thesame accounting period, and a decrease in such sales would have the oppositeeffect on the cash position. As of August 31, 2006, we had approximately $17.1million of deferred revenue compared to $16.1 million at August 31, 2005. 

*Investingactivities -* For the three months ended August 31, 2006, $0.8million of cash was used in investing activities primarily for the purchase ofproperty and equipment ($1.8 million), which was offset by proceeds from thematurity of short term investments ($1.0 million).  Planned capital expenditures for fiscal 2007total approximately $13.5 million.  

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In first quarterof fiscal 2006, we spent $2.6 million on the purchase of property and equipmentand invested $1.0 million in short-term investments.  In the same period, we also acquiredImmucor-Kainos, Inc. and paid ¥459 million (approximately $4.2 million) in cashon signing of the purchase agreements. We incurred other costs amounting to$0.5 million relating to this acquisition. Under the terms of the purchaseagreements, we are also required to pay an additional ¥300 million(approximately $2.5 million) over three years with payments of ¥125 million ineach of the first two years and the remaining ¥50 million in the third year. Asof August 31, 2006, we have paid ¥166 million of this liability.  In addition, a final payment of ¥441 millionwill be made after a three-year transition period ending on June 30, 2008, orearlier upon mutual agreement. 

*Financingactivities -* Net cash used in financing activities totaledapproximately $4.4 million and $1.4 million for the three months ended August31, 2006 and 2005, respectively. During the first quarter of fiscal 2007, weutilized $4.9 million to repurchase shares of our common stock and we received$0.2 million from the proceeds of stock option exercises; the excess taxbenefit from exercise of options by employees amounted to $0.4 million. Duringthe first fiscal quarter of fiscal 2006, we repaid long-term debt and capitalleases amounting to $1.4 million.

*Stock repurchase program*

As of May 31, 2006,7,950,975 shares had been purchased under the program, leaving 1,424,025available for purchase.  During thequarter ended August 31, 2006, we repurchased 281,969 shares at an average pershare price of $17.23, bringing the aggregate number of shares repurchased todate to 8,232,944 under the program. During the three months ended August 31,2006, the total amount spent for the shares bought under this program amounted to$4.9 million.  No shares were repurchasedduring the quarter ended August 31, 2005. An aggregate of 1,142,056 shares were available for repurchase under theprogram as of August 31, 2006.

*Contingentliabilities*

We record contingent liabilities resulting from asserted andunasserted claims against us when it is probable that a liability has beenincurred and the amount of the loss is reasonably estimable. We disclose contingentliabilities when there is a reasonable possibility that the ultimate loss willexceed the recorded liability. Estimating probable losses requires analysis ofmultiple factors, in some cases including judgments about the potential actionsof third-party claimants and courts. Therefore, actual losses in any futureperiod are inherently uncertain. We currently are involved in certain legalproceedings. We do not believe these proceedings will have a material adverseeffect on our consolidated financial position. It is possible, however, thatfuture results of operations for any particular quarterly or annual periodcould be materially affected by changes in our assumptions or the effectivenessof our strategies related to these proceedings. Contingent liabilities aredescribed in Note 8 to the condensed consolidated financial statements.

*FutureCash Requirements and Restrictions*

We expect thatcash and cash equivalents and cash flows from operations will be sufficient tosupport operations and planned capital expenditures for at least the next 12months.  There are no restrictions on oursubsidiaries in the matter of sending dividends, or making loans or advances toImmucor.

**Critical Accounting Policies**

*General*

We have identifiedthe policies below as critical to our business operations and the understandingof our results of operations. The impact and any associated risks related tothese policies on our business operations is discussed throughout Management’sDiscussion and Analysis of Financial Condition and Results of Operations wheresuch policies affect our reported and expected financial results.  For a detailed discussion on the applicationof these and other accounting policies, see the notes to the condensed consolidatedfinancial statements of this quarterly report on Form 10-Q and the notes to theconsolidated financial statements and the MD&A contained in our 2006 AnnualReport on Form 10-K for the fiscal year ended May 31, 2006.  Note that our preparation of this Form 10-Qrequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities, the disclosure of contingent assets and liabilitiesat the date of our financial statements, and the reported amounts of revenueand expenses during the reporting period. Actual results could differ fromthose estimates, and certain assumptions could prove to be incorrect.  Senior management has discussed thedevelopment and selection of critical accounting estimates and the related disclosuresin this Management’s Discussion and Analysis of Financial Condition and Resultsof Operations with the Audit Committee of the Board of Directors.

*Revenue Recognition*

We recognizerevenue when the following four basic criteria have been met:  (1) persuasive evidence of an arrangementexists; (2) delivery has occurred or services rendered; (3) the fee is fixedand determinable; and (4) collectibility is reasonably assured.  Should changes in conditions cause managementto determine these criteria are not met for certain future transactions,revenue recognized for any reporting period could be adversely affected. 

·                  Reagent sales

Revenue from the sale of our reagents to end users isrecognized upon shipment when both title and risk of loss transfer to thecustomer upon shipment, unless there are specific contractual terms to thecontrary.  Revenue from the sale of our reagentsto distributors is recognized FOB customs clearance when both title and risk ofloss transfer to the customer.  

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·                  Medicalinstrument sales

Revenue from the sale of our medical instruments isgenerally recognized upon shipment and completion of contractual obligations.  Revenue from rentals of our medicalinstruments is recognized over the term of the rental agreement.  Instrument service contract revenue isrecognized over the term of the contract. 

Beginning in the second quarter of fiscal year 2004,we began recognizing revenue on the sale of medical instruments in accordancewith Emerging Issues Task Force (“EITF”) Issue No. 00-21, *Accounting for Revenue Arrangements with MultipleDeliverables*.  Our medicalinstrument sales contracts involve multiple deliverables, including the sale orrental of an instrument (including delivery, installation and training), theservicing of the instrument during the first year, and, in some cases, priceguarantees for consumables purchased during the contract period and/or providinga software interface.  We have determinedthe fair value of certain of these elements, such as training and first yearservice.  The portion of the instrumentsales price applicable to the instrument itself is recognized upon shipment andcompletion of contractual obligations relating to training and/or installationbased on the related contractual specifications. If the agreement does notinclude any price guarantees, the sales price in excess of the fair values oftraining and service is allocated to the instrument itself.  The fair value of a training session isrecognized as revenue when services are provided.  If multiple sessions are contractually providedfor, and not all training has been completed at the time the instrument isrecognized, additional training revenue is recognized upon delivery.  The fair value of first year service isdeferred and recognized over the first year of the contract. If the agreementcontains price guarantees, the entire sales price is deferred and recognizedover the related guarantee period due to the fair value of the price guaranteenot being determinable at that time.  Theallocation of the total consideration received, which is based on the estimatedfair value of the units of accounting, requires judgment by management.  

·                  Sales subjectto a plan of factoring

Sales subject to a plan offactoring are recorded at net realizable value (defined as gross sales less theannual estimated cost of factoring the sale). Should the factored sale remain uncollected by the factor at the end ofone year, an estimate of the additional factoring discount is made and recordedmonthly as an additional reduction of sales revenue.  

*Trade Accounts Receivable and Allowancefor Doubtful Accounts*

Tradereceivables at August 31, 2006, totaling $37.6 million, and at May 31, 2006,totaling $37.2 million, are net of allowances for doubtful accounts of $1.7million and $2.0 million, respectively. The allowance for doubtful accounts represents a reserve for estimatedlosses resulting from the inability of our customers to pay their debts. Thecollectibility of trade receivable balances is regularly evaluated based on acombination of factors such as customer credit-worthiness, past transactionhistory with the customer, current economic industry trends and changes incustomer payment patterns. If it is determined that a customer will be unableto fully meet its financial obligation, such as in the case of a bankruptcyfiling or other material events impacting its business, a specific allowancefor doubtful accounts is recorded to reduce the related receivable to theamount expected to be recovered. 

*Inventory*

Inventories arestated at the lower of cost (first-in, first-out basis) or market (netrealizable value). Cost includes material, labor and manufacturingoverhead.  We use a standard cost systemas a tool to monitor production efficiency. The standard cost system applies estimated labor and manufacturingoverhead factors to inventory based on budgeted production and efficiencylevels, staffing levels and costs of operation, based on the experience andjudgment of management.  Actual costs andproduction levels may vary from the standard established and such variances arecharged to the consolidated statement of income as a component of cost ofsales.  Since U.S. generally acceptedaccounting principles require that the standard cost approximate actual cost,periodic adjustments are made to the standard rates to approximate actualcosts.  The provision for obsolete and/orexcess inventory is reviewed on a quarterly basis or, if warranted bycircumstances, more frequently.  Inevaluating this reserve, management considers technology changes, competition,customer demand, product shelf life and manufacturing quality.  No material changes have been made to theinventory policy during the first quarter of fiscal 2007.

*Goodwill*

On adoption of SFASNo. 142, *Goodwilland Other Intangible Assets,* goodwill and indefinite livedintangible assets are no longer amortized but are tested for impairmentannually or more frequently if impairment indicators arise.  Intangible assets that have finite lives arecontinuing to be amortized over their useful lives.  

We evaluate thecarrying value of goodwill during the fourth quarter of each year and betweenannual evaluations if events occur or circumstances change that would morelikely than not reduce the fair value of the reporting unit below its carryingamount. Such circumstances could include, but are not limited to: (1) asignificant adverse change in legal factors or in business climate, (2)unanticipated competition, or (3) an adverse action or assessment by aregulator. When evaluating whether goodwill is impaired, we compare the fairvalue of the reporting unit to which the goodwill is assigned to the reportingunit’s carrying amount, including goodwill. The fair value of the reportingunit is estimated using primarily the income, or discounted cash flows, approach.If the carrying amount of a reporting unit exceeds its fair value, then theamount of the impairment loss must be measured. The impairment loss would becalculated by comparing the implied fair value of reporting unit goodwill toits carrying amount. In calculating the implied fair value of reporting unitgoodwill, the fair value of the reporting unit is allocated to all of the otherassets and liabilities of that unit based on their fair values. The excess ofthe fair value of a reporting unit over the amount assigned to its other assetsand liabilities is the implied fair value of goodwill. An impairment loss wouldbe recognized when the carrying amount of goodwill exceeds its implied fairvalue. Our evaluation of goodwill completed during the year ended May 31, 2006 resultedin no impairment losses.

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*Income Taxes*

Our income taxpolicy records the estimated future tax effects of temporary differencesbetween the tax bases of assets and liabilities and amounts reported in theaccompanying consolidated balance sheets, as well as operating loss and taxcredit carry-forwards. The value of our deferred tax assets assumes that wewill be able to generate sufficient future taxable income in certain taxjurisdictions, based on estimates and assumptions. If these estimates andrelated assumptions change in the future, we may be required to recordadditional valuation allowances against our deferred tax assets resulting inadditional income tax expense in our consolidated statements of income. Inassessing the realizability of deferred tax assets, we consider whether it ismore likely than not that some portion or all of the deferred tax assets willnot be realized and consider the scheduled reversal of deferred taxliabilities, projected future taxable income, carry-back opportunities, andtax-planning strategies in making this assessment.  We also evaluate the realizability of thedeferred tax assets and assess the need for additional valuation allowancesquarterly.  No material changes have beenmade to the income tax policy during the first quarter of fiscal 2007.   

*Stock-Based Employee Compensation*

In December 2004, the Financial AccountingStandards Board revised Statement of Financial Accounting Standards No. 123,“Accounting for Stock-Based Compensation” (“SFAS 123R”), requiring companies torecord share-based payment transactions as compensation expense at the grantdate fair value. We adopted SFAS 123R effective June 1, 2006, using themodified prospective transition method, which requires that compensation costsbe recorded as earned for all unvested stock options outstanding at thebeginning of the first fiscal year of adoption of SFAS 123R based on the grantdate fair value estimated in accordance with the original provisions of SFAS123 and for compensation costs for all share-based payments granted or modifiedsubsequent to the adoption to be recorded, based on fair value estimated inaccordance with the provisions of SFAS 123R. In accordance with the modifiedprospective transition method, we have not restated the financial statementsfor prior periods and those statements do not include the impact of SFAS 123R. 

Total share-based compensation expenseincluded in the Condensed Consolidated Statement of Income for the three monthsended August 31, 2006 was $0.7 million. As a result of adopting SFASNo. 123R on June 1, 2006, our pre-tax income for the three months ended August31, 2006 was $0.7 million lower, and our net income after tax was $0.5 millionlower than if we had continued to account for share-based compensation underAPB No. 25. Basic and diluted earnings per share for the quarter endedAugust 31, 2006 were lower by $0.01 due to the adoption of SFAS No. 123R.  

We estimate the fair value of stockoptions using a Black-Scholes valuation model, consistent with the provisionsof SFAS 123R, Securities and Exchange Commission Staff Accounting Bulletin 107(“SAB 107”) and our prior pro-forma disclosures of net earnings, including thefair value of stock-based compensation. Key input assumptions used to estimatethe fair value of stock options include the expected term until the exercise ofthe option, the expected volatility of our stock, risk free rates of return,option forfeiture rates, and dividends, if any. The expected term of theoptions is based on the simplified transition method permitted by SAB 107. Theexpected volatility is derived from the historical volatility of our stock priceon the NASDAQ market. The risk-free interest rate is the yield from a Treasurybond or note corresponding to the expected term of the option. Estimated optionforfeiture rates are based on our historical forfeiture rates. Before theadoption of SFAS 123R, we used actual forfeiture rates to calculatecompensation expense as allowed by SFAS 123 for the disclosure footnoterequired under SFAS 148. We estimate that the impact of this change, from theactual forfeiture rates to the estimated forfeiture rates as required underSFAS 123R, is not likely to have a material impact on our financial statementsas it is expected that we will continue to experience low staff turnover.  We have not paid dividends on our commonstock and do not expect to pay dividends on our common stock in the near future,and hence dividends are not considered in determining the fair value of stockoptions.  

As of August31, 2006, there was $7.0 million of total unrecognized compensation costrelated to non-vested share based compensation arrangements granted under the2005 Long Term Incentive Plan.  This costis expected to be recognized over a weighted-average period of 4.9 years.

**ITEM3.  Quantitative and QualitativeDisclosures about Market Risk.**

There have been nomaterial changes regarding the Company’s market risk position since the filingof its Annual Report on Form 10-K for the fiscal year ended May 31, 2006.  For further details regarding the quantitativeand qualitative disclosures about market risk, see Item 7A-Quantitative andQualitative Disclosures About Market Risk, contained in the Company’s AnnualReport on Form 10-K for the fiscal year ended May 31, 2006.

**ITEM 4.  Controls and Procedures.**

As required by Rule 13a-15 under the SecuritiesExchange Act of 1934, an evaluation was carried out under the supervision andwith the participation of our management, including the Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures as of August 31, 2006. Based upon ourevaluation, our Chief Executive Officer and Chief Financial Officer haveconcluded that, as of August 31, 2006, our disclosure controls and procedureswere effective to provide reasonable assurance that information required to bedisclosed in the reports that we file or submit under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within the timeperiods specified in the applicable rules and forms, and that it isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure.

During the quarterended August 31, 2006, we implemented the new computer system and relatedinternal controls as planned at Immucor-Kainos, Inc., our subsidiary which wasacquired in July 2005.

Other than indicated above, there were no changes inour internal control over financial reporting during the quarter ended August31, 2006 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

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**PART II**

**OTHER INFORMATION**

**ITEM 1. Legal Proceedings.**

As previously reported in our Annual Report on Form10-K for the fiscal year ended May 31, 2006, our Italian subsidiary and Dr.Gioacchino DeChirico, the former President of the subsidiary, are the subjectsof criminal proceedings in Milan, Italy centered on payments by severalcompanies, including Immucor, to certain Italian physicians allegedly inexchange for favorable contract awards by their hospitals. Dr. DeChirico hasbeen charged as the former President of the subsidiary with directing a €13,500payment to one physician and payments totaling approximately $47,000 to anotherphysician, and the subsidiary has also been charged concerning the €13,500payment under an Italian law holding the subsidiary responsible for actionsallegedly taken by an officer. The SEC has issued a formal investigative orderin these matters but has not expressed to us any conclusions about the ultimateoutcome of its investigation. A preliminary hearing in Italy has been set for October10, 2006, and we are in discussions with the Italian prosecutor about settlingthe Italian proceeding before the hearing. We expect to reach such a settlement on terms that will not have amaterial adverse effect on our consolidated financial position.  However, Dr. DeChirico has indicated heintends to contest any charges against him, and such proceedings and relatedappeals could continue for an extended period of time.  Both the Company and Dr. DeChirico intend toseek to settle the SEC investigation in the near term.  Except in connection with our above-noteddiscussions with the Italian prosecutor, no determination can yet be made as towhether, in connection with these circumstances, we will become subject to anyfines, penalties and/or other charges imposed by any governmental authority, orany other damages or costs that may arise in connection with thesecircumstances.

Between August 31 and October 19, 2005, a series often class-action lawsuits were filed in the United States District Court forthe Northern District of Georgia against us and certain of our current andformer directors and officers alleging violations of the securities laws. TheCourt has consolidated these cases for disposition under the caption In reImmucor, Inc. Securities Litigation, File No. 1:05-CV-2276-WSD, designated leadplaintiffs, permitted the filing of an amended consolidated complaint, andestablished a schedule for briefing our motion to dismiss the claims. Theconsolidated complaint, brought on behalf of a putative class of shareholderswho purchased Immucor stock between August 16, 2004 and August 29, 2005,alleges that our stock prices during that period were inflated as a result ofmaterial misrepresentations or omissions in our financial statements and other publicannouncements regarding our business. On March 7, 2006, we timely moved todismiss the consolidated complaint. On October 4, 2006, the Court denied ourmotion to dismiss. Discovery has not yet begun. The Court made no determinationwhether any of the plaintiffs’ claims have merit or should be allowed toproceed as a class action. We believe the claims are without merit, and intendto vigorously defend the Company. While we do not currently expect theselawsuits to materially affect our financial condition or results of operations,there can be no assurance of any particular outcome.

A description of the Company's other material pendinglegal proceedings is included in Note 8 to the accompanying condensedconsolidated financial statements, which is incorporated herein by referencethereto. Other than as set forth above or as previously reported in our AnnualReport on Form 10-K for the fiscal year ended May 31, 2006, as filed with theSEC on August 1, 2006, we are not currently subject to any material legalproceedings, nor, to our knowledge, is any material legal proceeding threatenedagainst us. However, from time to time, we may become a party to certain legalproceedings in the ordinary course of business. We do not believe any ongoinglegal proceedings, including those summarized above, will have a materialadverse effect on our consolidated financial position. 

**ITEM 1A.   RiskFactors.**

There have been nomaterial changes from the risk factors set forth in our Annual Report on Form10-K for the year ended May 31, 2006, as filed with the SEC on August 1, 2006. In addition to the other information setforth in this report, you should carefully consider the factors discussed inPart I, Item 1A. “Risk Factors” in our Annual Report on Form 10-Kwhich could materially affect our business, financial condition or futureresults. The risks described in our Annual Report on Form 10-K are not the onlyrisks facing our company. Additional risks and uncertainties not currentlyknown to us or that we currently deem immaterial also may have a materialadverse effect on our business, financial condition and/or operating results.

**ITEM 2.     UnregisteredSales of Equity Securities and Use of Proceeds.**

TheCompany repurchased shares of its Common Stock under the Company’s stockrepurchase program during the quarter ended August 31, 2006 as indicated in thetable below:  
| ** **        | ** ** | ** **                | ** ** | ** **             | ** ** | **Shares Purchased to**                | ** ** | **Maximum # of Shares** | ** ** |
|-------------------|------------|---------------------------|------------|------------------------|------------|--------------------------------------------------|------------|----------------------------------------|------------|
| ** **        | ** ** | ** **                | ** ** | **Average Price** | ** ** | **Date as Part of Publicly** | ** ** | **Available to Purchase**    | ** ** |
| **Period**        | ** ** | **Shares Purchased** | ** ** | **Per Share**     | ** ** | **Announced Plan**                          | ** ** | **Under the Plan**           | ** ** |
| ** **        | ** ** | ** **                | ** ** | ** **             | ** ** | ** **                                       | ** ** | ** **                             | ** ** |
| June 1-30, 2006   |       | 281,969                   |       | $                      | 17.23      |                                             | 8,232,944  |                                   | 1,142,056  |   |
| July 1-31, 2006   |       | —                    |       | $                      | —     |                                             | 8,232,944  |                                   | 1,142,056  |   |
| August 1-31, 2006 |       | —                    |       | $                      | —     |                                             | 8,232,944  |                                   | 1,142,056  |   |

 

The Companyinstituted a stock repurchase program in June 1998 for up to 6,075,000shares.  On June 1, 2004, the Board ofDirectors authorized the Company to repurchase up to an additional 675,000shares of its common stock.  On August 2,2004, the Board of Directors authorized the Company to repurchase up to anadditional 1,125,000 shares of its common stock.  On December 13, 2005, the Board of Directors authorizedthe Company to repurchase up to an additional 1,500,000 shares, bringing thetotal number of shares authorized for repurchase to 9,375,000.  As of August 31, 2006, an aggregate of1,142,056 shares were available for repurchase under the program.  The Company’s stock repurchase program doesnot have an expiration date.

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**ITEM 6. Exhibits.**

The Company hasfiled the following exhibits with this report:
| 3.1    |   | Amended and Restated Articles of Incorporation  (incorporated by reference to Exhibit 3.1 to Immucor, Inc.’s Quarterly Report  on Form 10-Q filed on January 16, 2001).                                      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                              |
| 3.2    |   | Amendment to Amended and Restated Articles of Incorporation  dated November 11, 2004 (incorporated by reference to Exhibit 3.1 to Immucor,  Inc.’s Quarterly Report on Form 10-Q filed on January 14, 2005). |
|   |   |                                                                                                                                                                                                              |
| 3.3    |   | Amendment to Amended and Restated Articles of  Incorporation dated December 22, 2005 (incorporated by reference to Exhibit  3.3 to Immucor, Inc.’s Quarterly Report on Form 10-Q filed on April 6, 2006).    |
|   |   |                                                                                                                                                                                                              |
| 3.4    |   | Amended and Restated Bylaws (incorporated by  reference to Exhibit 3.1 to Immucor, Inc.’s Current Report on Form 8-K filed  on September 13, 2006).                                                          |
|   |   |                                                                                                                                                                                                              |
| 31.1   |   | Certification of Principal Executive Officer  Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                                                                     |

 

 
| 31.2   |   | Certification of Principal Financial Officer  Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*          |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                   |
| 32.1   |   | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.*  |
|   |   |                                                                                                   |
| 32.2   |   | Certification of  Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.* |

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*                 Thecertifications contained in these exhibits are not “filed” for purposes ofSection 18 of the Exchange Act [15 U.S.C. 78r], or otherwise subject to theliability of that section.  Suchcertifications will not be deemed to be incorporated by reference into anyfiling under the Securities Act or the Exchange Act, except to the extent thatthe Company specifically incorporates them by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                       |                                                          | IMMUCOR, INC.                |
|-----------------------|---------------------------------------------------------------|------------------------------|
|                  |                                                          | (Registrant)                 |
|                  |                                                          |                         |
|                  |                                                          |                         |
| Date: October 5, 2006 | By:                                                           | /s/ Dr. Gioacchino DeChirico |   |
|                  | Dr. Gioacchino  DeChirico, Chief Executive Officer            |
|                  | (on behalf of  Registrant and as Principal Executive Officer) |
|                  |                                                          |
|                  |                                                          |                         |
| Date: October 5, 2006 | By:                                                           | /s/ Patrick D. Waddy         |   |
|                  | Patrick D.  Waddy, Chief Financial Officer and Secretary      |
|                  | (Principal  Financial and Accounting Officer)                 |
|                       |                                                               |                              |  |  |  |

 

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**EXHIBITINDEX**
| **Number** | ** ** | **Description**                                                                                                                                                                                                   |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                              |
| 3.1        |       | Amended and Restated Articles of Incorporation  (incorporated by reference to Exhibit 3.1 to Immucor, Inc.’s Quarterly Report  on Form 10-Q filed on January 16, 2001).                                      |
|       |       |                                                                                                                                                                                                              |
| 3.2        |       | Amendment to Amended and Restated Articles of Incorporation  dated November 11, 2004 (incorporated by reference to Exhibit 3.1 to Immucor,  Inc.’s Quarterly Report on Form 10-Q filed on January 14, 2005). |
|       |       |                                                                                                                                                                                                              |
| 3.3        |       | Amendment to Amended and Restated Articles of  Incorporation dated December 22, 2005 (incorporated by reference to Exhibit  3.3 to Immucor, Inc.’s Quarterly Report on Form 10-Q filed on April 6, 2006).    |
|       |       |                                                                                                                                                                                                              |
| 3.4        |       | Amended and Restated Bylaws (incorporated by  reference to Exhibit 3.1 to Immucor, Inc.’s Current Report on Form 8-K filed  on September 13, 2006).                                                          |
|       |       |                                                                                                                                                                                                              |
| 31.1       |       | Certification of Principal Executive Officer  Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                                                                     |
|       |       |                                                                                                                                                                                                              |
| 31.2       |       | Certification of Principal Financial Officer  Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                                                                     |
|       |       |                                                                                                                                                                                                              |
| 32.1       |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                             |
|       |       |                                                                                                                                                                                                              |
| 32.2       |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                             |

 

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*                 Thecertifications contained in these exhibits are not “filed” for purposes ofSection 18 of the Exchange Act [15 U.S.C. 78r], or otherwise subject to theliability of that section.  Suchcertifications will not be deemed to be incorporated by reference into anyfiling under the Securities Act or the Exchange Act, except to the extent thatthe Company specifically incorporates them by reference.

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